November 1, 2018 / 8:51 AM / in 11 days

Japan's inflation headwinds grow as mobile carriers eye fee cuts

TOKYO (Reuters) - Japan’s efforts to hit its elusive inflation target have been hampered by slow wage growth and intensifying global trade frictions but are now also facing headwinds from plans by the country’s biggest mobile phone carrier to cut fees.

NTT Docomo Inc President and CEO Kazuhiro Yoshizawa speaks during an interview with Reuters at the company headquarters in Tokyo, Japan July 7, 2016. REUTERS/Toru Hanai

NTT Docomo Inc said on Wednesday it would cut mobile charges by up to 40 percent in the April-June quarter next year, following government criticism that fees are left artificially high due to a lack of competition in the industry.

Other dominant carriers like KDDI Corp and SoftBank Group Corp could follow suit, which could add to the Bank of Japan’s headaches as it struggles to achieve its slippery 2 percent inflation target, analysts say.

“It’s unclear how much such moves could push down consumer inflation. But they could add pressure on the BOJ to cut again its price forecast for next fiscal year, which remains too optimistic,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

NTT Docomo’s announcement came the same day the BOJ cut its inflation forecasts and warned that global uncertainties and the public’s sticky deflationary mindset may mean it would take time to hit its inflation target.

The internal affairs ministry, which compiles the consumer price index, says a 40 percent drop in mobile charges by the main carriers could slow core consumer inflation by 0.96 percentage point. Japan’s CPI data comprises 585 items, including mobile charges that make up 2.4 percent of core CPI.

However, just how much such cuts would weigh on the CPI would depend on the extent to which carriers make up for their subscription shortfall by increasing the prices they charge for handsets.

While the actual fee cuts and the impact on CPI may turn out to be smaller than the ministry’s estimates, the deflationary effect may still be enough to push inflation further away from the BOJ’s 2 percent target, analysts say.

Others, however, say that while fee reductions may weigh on inflation in the short-term, they could help accelerate price growth if consumers boost spending on other items.

Chief Cabinet Secretary Yoshihide Suga said last month carriers could cut mobile charges by up to 40 percent. The remark reflects government hopes that by cutting wireless fees, it can stimulate spending in other areas and reflate growth.

Telecoms fees as a percentage of total household spending have continued to rise, government figures show, reaching 4.2 percent last year, driven by higher wireless costs.

“In the past, real income was weak, but now real income is recovering, so if consumers set aside the money they save on mobile phone fees, they are likely to spend that money on other things,” said Takuji Aida, chief economist at Societe Generale Securities.

“I think the government can achieve its goal of helping consumer spending with this plan.”

In the latest projection released on Wednesday, the BOJ expects core consumer inflation to hit 1.4 percent in the next fiscal year ending in March 2020, much higher than a 0.9 percent increase projected in a Reuters poll.

Japan’s core consumer prices rose 0.7 percent in September from a year earlier, driven mostly by higher energy costs.

Additional reporting by Yoshiyasu Shida; Editing by Sam Holmes

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